Statement by IMF Staff Mission to Mozambique

Press Release No. 08/264
October 30, 2008

An International Monetary Fund (IMF) mission, led by Mr. Robert Sharer, visited Maputo from October 14-30, 2008, to review progress under Mozambique's three-year Policy Support Instrument (PSI) and to discuss the IMF's ongoing support for the country's reform efforts. The mission issued the following statement in Maputo today:

"Overall performance under the program was satisfactory. Mozambique's macroeconomic performance in 2008 has remained strong, although it was adversely affected by the increase in international food and fuel prices in mid-year. The Government's fiscal plans were revised in July to reflect measures to mitigate the social impact of higher fuel and food prices. Headline inflation at the end of 2008 is now projected to exceed 10 percent; core inflation (which excludes food and energy items) is contained at below 4 percent. Economic growth for 2008 is projected to slow to 6.5 percent from 7.0 in 2007.

"All the program's quantitative and structural assessment criteria and benchmarks through end-September 2008 were met. Important progress has been made in strengthening public finance management, in improving the operational capacity of the revenue administration and in broadening the tax base. The Government used the system of program budgeting to prepare the 2009 budgets and linked the programs of five ministries to the PARPA sub-programs. Furthermore, the government started to pay salary through e-Sistafe, a system that was further rolled out to twenty State organs at the central level. To make Mozambique's business environment more competitive the government consolidated business inspections in selected sectors, simplified the licensing and prepared a corporate insolvency law.

"The outlook for 2009 remains robust. However, there are considerable risks arising from the impact of the current global financial crisis. Large variations in international prices and the recent substantial price declines for commodities have a substantial impact on Mozambique's external trade and a deeper slowdown in global demand would also affect export volumes. Moreover, the global financial crisis may adversely affect private capital inflows. In addition, the economy remains heavily dependent on inflows from the international donor community. This support is key to help Mozambique progress toward the Millennium Development Goals.

"The mission agrees with the authorities that prudent fiscal and monetary policies need to continue to be implemented to consolidate macroeconomic stability in the context of a flexible exchange rate system. The budget submitted to Parliament envisages the reinstatement of the temporarily suspended fuel taxes and, through a further enlargement of the tax base, an increase of revenues by 0.5 percent of GDP. The draft budget envisages priority expenditures representing 65 percent of total expenditures, including the hiring of 12,000 new teachers and 1,500 health workers. The authorities have stated their intention to implement reforms of the public sector salary policy and the National Institute of Social Security (INSS) that are fiscally sustainable. The Government also intends to maintain the pace of public finance management and tax administration reforms.

The mission also welcomes the authorities' decision to formally request adherence to the Extractive Industry Transparency Initiative (EITI), which will help ensure the transparent management of natural resources, and their decision to accelerate reforms to reduce the cost of doing business.

"Mozambique's third review under the PSI-supported reform program is expected to be discussed by the IMF Executive Board in January 2009."



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